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Falling economy More trouble for businesses as banks set to reduce credits

The cedi continues to depreciate against the major international currencies

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Managing Director of Fidelity Bank, Mr. Edward Effah play

Managing Director of Fidelity Bank, Mr. Edward Effah

The Managing Director of Fidelity Bank, Mr. Edward Effah, has predicted a decline in credit to businesses this year as a result of the current harsh economic conditions.

With the energy crisis continuing into the second half of the year, Treasury bill rates averaging 25 per cent, inflation at a year-high of 16.9 per cent and the Bank of Ghana policy rate pegged at 22 per cent, Mr. Effah said banks would generally be discouraged from lending to businesses for fear of defaults.

“It is natural that looking at the economic situation, most banks will slow down on lending and when things stabilise they will go up again,” he told the GRAPHIC BUSINESS in Accra.

A drop in credit to businesses will complicate the troubles of the business community, especially those in the manufacturing sector whose fortunes have been dampened by the ongoing power crisis.

Already, power supply challenges and the depreciation of the local currency have impacted negatively on businesses, causing a rise in their cost of production and subsequently reducing their profit margins.

The risk associated with lending to businesses has hightened and consequently, most banks have slowed down on giving out loans and are rather focusing on investing in treasury bills and other securities. 

A recent survey of credit conditions by the Bank of Ghana indicated an overall net tightening for all loan types

The findings of the survey, which was published in the May 2015 report of the bank’s Monetary Policy Committee (MPC) showed that in the first quarter of this year, private sector credit growth declined to 36.4 per cent from 42.1 per cent in December 2014. In real terms, the report showed that credit growth declined from 21.9 per cent in the last quarter of 2014 to 17 per cent in the first quarter of this year.

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